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Data Companies Carve Out Niche In DNA Test Interpretation

For more than a decade researchers have been unleashing a deluge of information about the role of genes in disease, based on automated sequencing of DNA. Genetic tests on individual patients are slowly becoming more common, more detailed, and less costly.

But patients won’t benefit if their doctors don’t know what to make of those test results. They need interpreters, and that’s the role being staked out by small companies like San Francisco-based CollabRx (NASDAQ: CLRX) and Lexington, MA-based N-of-One, which help doctors wade through the flood of genetic information and choose the best treatments.

Both these companies were founded in 2008, when the market for DNA-based diagnostic tests was much less robust than it is now. The question is whether their early investment in the emerging niche will pay off for them soon. Their revenues depend on the number of tests performed, and health plans are often slow to approve reimbursement for new tests based on recent genetic insights.

Both CollabRx and N-of-One see favorable trends on the horizon, though—not least of which is the declining cost of DNA sequencing due to innovations by companies like San Diego-based Illumina (NASDAQ: ILMN) and other suppliers of next-generation sequencing equipment to medical centers and commercial labs such as Quest Diagnostics (NYSE: DGX).

“They have spent a lot of money and time making it very simple for labs to do sequencing, and do it very cheaply,” says CollabRx CEO Thomas Mika (pictured above.)

DNA-based diagnostic tests are gradually becoming a more routine part of clinical care. Research continues to reveal details about the specific genes behind inherited disorders, and about specific mutations in tumors that indicate which cancer drugs might work best for a particular patient.

Prospects for the data interpretation field have also been strengthened by companies such as Cambridge, MA-based Foundation Medicine (NASDAQ: FMI), which has influenced oncologists to order its broad, multi-gene tests of tumor tissue, rather than simpler tests for single genetic abnormalities.

In its third quarter earnings report this month, Foundation reported revenue from clinical testing of $9.8 million, a 122 percent increase over the same period last year. The company predicted that its clinical testing volume for the full year will be 22,000 to 25,000 tests. Foundation has also been a pioneering advocate for genomic test reimbursement; it recently secured coverage for two of its key tests from Priority Health.

Broad test panels like Foundation’s, which are marketed by an increasing number of diagnostics firms, may identify treatment options for some individuals that simpler tests would have missed. They also make test interpretation more complex—a boost for companies that can analyze the data for doctors.

Information about the genetic code, a key to our biological fate, has often rested with companies such as Illumina and Foundation, which actually handle patient samples as they sequence DNA strands and study genes that contribute to disease.

But bioinformatics companies have also stepped in to mine the genomic data from many sources, and explore generally how diseases work. This has helped pharmaceutical companies find new ways to design drugs.

CollabRx and N-of-One are pioneer members of a new class of independent data analytics companies that evaluate information from the point of view of individual patients. This data includes the known links between specific genes and diseases, the new drugs that target those troublesome genes, and the patient’s medical history. That history can include the disease stage, prior treatments, and the results of genetic tests.

As the cost of sequencing continues to drop, the business of evaluating medical and genomic evidence for individual patients may some day pull in revenues to rival those from sequencing itself, according to Mika and other industry observers.

“Sequencing is a commodity,” Mika says. “The value is in the interpretation.”

The young sector has already seen competitive shifts. In 2012, Foundation Medicine started a collaboration with N-of-One for interpretation of its tumor sample tests, but it has since taken that function in-house. That’s fine, says Cournoyer: Other potential customers such as hospital chains are adding genomic testing to their clinical practice, but will still need help with the interpretation.

Are there enough customers yet to support a robust group of companies like CollabRx and N-of-One? It might still be too early, and technology pundits often wonder which is worse: jumping on an emerging opportunity too late or jumping in too early.

Mika says the field isn’t moving as fast as he expected when his former company Tegal, a publicly traded supplier of devices for semiconductor manufacturers that faced declining sales after the financial crisis, decided to pivot to a more promising health care field by acquiring CollabRx in 2012 and adopting its name.

“I didn’t appreciate how early it was,” Mika says.

Tegal acquired the clinical oncology database and network of expert cancer doctors assembled by CollabRx founder Jay “Marty” Tenenbaum, an Internet commerce pioneer and cancer survivor. Back when Tenenbaum was diagnosed, he’d been frustrated that the power of the Web and data analytics hadn’t yet been deployed to help doctors sift through the emerging genomics research.

CollabRx now offers a Web-based software service called Genetic Variant Annotation Service (GVA) to laboratories conducting DNA-based tests. A lab submits results for a patient, and CollabRx sends back a report with treatment options, including drugs already approved for the patient’s condition, drugs awaiting approval, and experimental drugs in clinical trials that are actively recruiting, Mika says.

CollabRx also publishes free Web-based apps called Therapy Finders for physicians and patients on its own website and through a media partner, Everyday Health’s MedPage Today.

Since 2012, CollabRx has begun collaborations with the University of Chicago Medical Center and The Jackson Laboratory, a biomedical research institution in Bar Harbor, Maine. The company also has inked deals for diagnostic test interpretation with companies including Quest Diagnostics, Cynvenio Biosystems of Westlake Village, CA; the Belgian company OncoDNA; and Carlsbad, CA-based Life Technologies, a division of Waltham, MA-based Thermo Fisher Scientific (NYSE: TMO).

However, Mika says the volume of testing from its partner labs has been considerably lower than he expected this year. Oncologists at top academic centers might place frequent orders for DNA testing, but most cancer patients are treated in community hospitals, where doctors place fewer orders, Mika says.

CollabRx revenues for its 2014 fiscal year ending March 31 were $658,000, and the company reported a net loss of $3.3 million. The company’s share price, which began the year at $3.80, slipped below $1 in October.

CollabRx currently has a staff of 16, including 10 employees who keep its oncology database updated.

Mika says the CollabRx business model is solid, but the timing isn’t optimal. Wall Street’s perception is that CollabRx can’t control its own destiny, because it’s dependent on the ability of diagnostics companies to sell their tests, Mika says. However, he’s hopeful that the testing rate for CollabRx partners will pick up over the coming year. In the meantime, he’s exploring business deals.

“We’re looking at a lot of different options to get what we believe is a valuable asset funded,” Mika says.

On Nov. 10, CollabRx announced a co-marketing deal with Cambridge, MA-based Cartagenia, which offers clinical labs software to manage their workflows as they conduct next-generation sequencing and then report the results.

Meanwhile, N-of-One CEO Cournoyer takes a more optimistic view than Mika does. She thinks the timing has improved this year for data analytics companies offering clinical interpretation, though it’s still a very early market.

“Three years ago, I don’t think many people believed that there was a standalone business opportunity,” Cournoyer says. But the tide seemed to turn in January at the big J.P. Morgan Annual Healthcare Conference, she says. Analysts were seeing the value. “It was like a light bulb went on and the market opened up,” Cournoyer says.

This year, N-of-One has signed on with 10 new partners. Four are hospitals or healthcare systems, including the Mayo Clinic and Cedars-Sinai’s Samuel Oschin Comprehensive Cancer Institute in Los Angeles. Four are diagnostics companies, and another two are software companies that, like N-of-One, are bringing the tools of data analysis into the interpretation of genetic and molecular test results. One of these is Palo Alto, CA-based Syapse, which has integrated its software with UC San Francisco’s electronic medical records system. The other is St. Louis, MO-based bioinformatics company Appistry.

As a private company, N-of-One has no obligation to disclose the revenues it’s receiving from its partnerships, so it can’t be compared with CollabRx by those measures. N-of-One was funded by angel investors, and doesn’t disclose its total fundraising.

N-of-One is extending the scope of its clinical interpretation work beyond DNA sequencing alone to include other molecular diagnostics, such as protein expression, Cournoyer says. The company, which focuses on oncology, has nearly 40 employees.

“It’s still very early in the adoption curve, but we’re starting to see more widespread and consistent reimbursement,” says Rombel, who has done some consulting for N-of-One.

More reliable reimbursement would increase testing volumes, which could benefit independent data analytics companies that interpret the tests. But that would also make the clinical interpretation business more attractive to big players in the sequencing equipment industry, such as Illumina and Life Technologies.

As next-generation sequencing becomes more widely used, the tests will generate an ever-growing body of valuable information for treating physicians, Rombel says. “So it’s not surprising that we’re seeing big sequencing enterprises such as Illumina starting to build their own capacities to collect and interpret that information.”

Big sequencing businesses have recently acquired companies that bring important capabilities in-house, such as the analysis and interpretation of complex biological data, with an eye towards clinical data, Rombel says. She points to Illumina’s acquisition of Santa Clara, CA-based NextBio in 2013; Netherlands-based equipment maker Qiagen’s acquisition of Redwood City, CA-based Ingenuity in 2013; and Life Technologies’ acquisition in 2102 of Ann Arbor, MI-based Compendia Bioscience.

Those acquired companies had developed genomics databases that helped researchers understand the molecular basis of disease, while helping pharmaceutical companies identify molecular targets for new drugs. The widening interest from major sequencing companies could also bring new opportunities for independent data analytics businesses that use their knowledge to guide the treatment of individual patients.

“It would be logical for the sequencing companies to round out their skills by adding the clinical interpretation component, through partnerships or acquisitions of stand-alone data companies that already have extensive databases and proven analytical tools,” Rombel says.

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy